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Examination Objectives:

 

On successful completion of the examination the candidate should:

  • Know the basics of the Indian equity derivatives market.
  • Understand the various trading strategies that can be built using futures and options on both stocks and stock indices.
  • Understand the clearing, settlement and risk management as well as the operational mechanism related to equity derivatives markets.
  • Know the regulatory environment in which the equity derivatives markets operate in India.

 

Assessment Structure:

 

The NISM-Series-VIII: ED Examination will be a 100 marks examination to be completed in 2 hours. It will have 100 questions of 1 mark each. There will be negative marking of 25% of the marks assigned to a question. The passing score for the examination is 60%.

 

NISM Equity Derivatives Syllabus

 

I. Basics of Derivatives

  1. Basics of derivatives
  2. Evolution of derivatives market
  3. Indian derivatives Market
  4. Market participants
  5. Types of derivatives markets
  6. Significance of derivatives
  7. Various risk faced by the participants in derivatives

 II. Understanding Index

  1. Introduction to Index
  2. Significance and economic purpose of Index
  3. Types of Indices
  4. Attributes of an Index and concept of impact cost
  5. Index management
  6. Major Indices in India
  7. Applications of Index

 III. Introduction to Forwards and Futures

  1. Introduction to Forwards and Futures contracts
  2. Payoff Charts for Futures contract
  3. Futures pricing
  • Cash and carry / Non-arbitrage model for futures pricing
  • Expectancy model of futures pricing
  • Concept of convergence of cash and futures prices
  1. Basic differences in Commodity, Equity and Index Futures
  2. Uses of futures
  • Role of different players in futures market
  • Use of futures contract as an effective instrument for managing risk
  • Strategies for hedging, speculation and arbitrage in futures market

 IV. Introduction to Options

  1. Basics of options
  2. Payoff Charts for Options
  3. Basics of options pricing and option Greeks
  • Fundamentals of options pricing
  • Overview of Binomial and Black-Scholes option pricing models
  • Basics of Option Greeks
  1. Uses of Options

 V. Option Trading Strategies

  1. Option spreads and their payoff charts
  2. Straddle: market view and payoff charts
  3. Strangle: market view and payoff charts
  4. Covered Call: market view and payoff charts
  5. Protective Put: market view and payoff charts
  6. Collar: market view and payoff charts
  7. Butterfly spread: market view and payoff charts

 VI. Introduction to Trading Systems

  1. Trading Systems, corporate hierarchy, order types and conditions
  2. Selection criteria of Stock for trading
  3. Selection criteria of Index for trading
  4. Adjustments for Corporate Actions
  5. Position Limits
  6. Using daily newspapers to track futures and options

 VII. Introduction to Clearing and Settlement system

  1. Clearing Members, their role and eligibility norms
  2. Clearing Mechanism and computation of open positions
  3. Settlement Mechanism for stock and index futures and options
  4. Understanding margining and mark to market under SPAN
  5. Risk Management features and position limits

 

VIII. Legal and Regulatory Environment

  1. Securities Contract (Regulation) Act, 1956
  2. Securities and Exchange Board of India Act, 1992
  3. Important rules and regulations in derivatives trading
  4. Regulation in clearing & settlement and risk management
  5. Major recommendations of the L C Gupta Committee
  6. Major recommendations of the J R Verma Committee

 IX. Accounting and Taxation

  1. Accounting of Futures and Options contracts
  2. Taxation of Derivative transaction in securities

 X. Sales Practices and Investors Protection Services

  1. Risk profile of the investors.
  2. Importance of profiling clients in sales process
  3. Importance of KYC
  4. Documents required by the investors to trade in Derivatives contract
  5. Best practices in derivatives sales
  6. Investors Grievance Mechanism